Income Tax law: Apex court lays down principles in matters of search, seizure

In a significant verdict, the Supreme Court on Wednesday laid down principles for High Courts in matters of search and seizure under Income Tax rules, and said formation of opinions and reasons to believe recorded by the revenue department is not a judicial or quasi-judicial function, but administrative in character.

A bench of Justices Hemant Gupta and V Ramasubramanian set aside the Gujarat High Court order quashing the warrant of authorisation of search and seizure dated August 7, 2018, issued by Principal Director of Income Tax (investigation).

"We find that the High Court was not justified in setting aside the authorisation of search dated August 7, 2018. Consequently, the appeal is allowed and the order passed by the High Court is set aside. As a consequence thereof, the Revenue would be at liberty to proceed against the assessee in accordance with law," the apex court ruled.

The High Court had passed the order on a plea of an Ahmedabad-based businessman who invested money in a recreation company in Goa and on whose premises search and seizure were conducted by the revenue department.

The bench said in light of earlier judgments, the sufficiency or inadequacy of reasons to believe recorded cannot be gone into while considering the validity of an act of authorisation to conduct search and seizure.

"The belief recorded alone is justiciable, but only while keeping in view the Wednesbury Principle of Reasonableness. Such reasonableness is not a power to act as an appellate authority over the reasons to believe recorded," it said.

The bench said it would like to elaborate the principles in exercising the writ jurisdiction in the matter of search and seizure under Section 132 of the Income Tax Act.

"The formation of opinion and the reasons to believe recorded is not a judicial or quasi-judicial function, but administrative in character," it said, adding that the information must be in possession of the authorised official on the basis of the material and that the formation of opinion must be honest and bona fide and cannot be merely pretence.

It said consideration of any extraneous or irrelevant material would vitiate the belief/ satisfaction.

"The authority must have information in its possession on the basis of which a reasonable belief can be founded that the person concerned has omitted or failed to produce books of accounts or other documents for production of which summons or notice had been issued, or such person will not produce such books of accounts or other documents even if summons or notice is issued to him," the bench said.

It said there should be reasonable belief that such a person is in possession of any money, bullion, jewellery or other valuable article which represents either wholly or partly income or property, which has not been or would not be disclosed.

"Such reasons may have to be placed before the High Court in the event of a challenge to formation of the belief of the competent authority in which event the Court would be entitled to examine the reasons for the formation of the belief, though not the sufficiency or adequacy thereof. In other words, the Court will examine whether the reasons recorded are actuated by malafides or on a mere pretence and that no extraneous or irrelevant material has been considered," it said.

The bench said such reasons forming part of the satisfaction note are to satisfy the judicial consciousness of the Court and any part of such satisfaction note is not to be made part of the order.

"The question as to whether such reasons are adequate or not are not a matter for the Court to review in a writ petition. The sufficiency of the grounds which induced the competent authority to act is not a justiciable issue," the bench said.

It added that the relevance of the reasons for the formation of the belief is to be tested by the judicial restraint as in administrative action as the Court does not sit as a Court of appeal, but merely reviews the manner in which the decision was made.

"The Court shall not examine the sufficiency or adequacy thereof," it said, adding that in terms of the explanation inserted by the Finance Act, 2017 with retrospective effect from April 1, 1962, such reasons to believe as recorded by income tax authorities are not required to be disclosed to any person or any authority or the appellate tribunal.

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